Lasting Power of Attorney (LPA) and Small Business Owners: A Critical Safeguard for Continuity

As a small business owner, you likely wear many hats, from managing day-to-day operations to planning for the future. While you may have contingency plans for various business risks, have you considered what would happen if you were suddenly incapacitated and unable to make decisions for your business? This is where the importance of a Lasting Power of Attorney (LPA) comes into play. In the UK, LPAs offer a legal mechanism that allows someone you trust to step in and make decisions on your behalf if you are unable to do so, ensuring the continuity of your business.

In this blog post, we’ll explore what LPAs are, how they work, and why every small business owner should seriously consider setting one up.

Please note that this article acts as general information and is not legal advice, you should check the details with  your professional advisor such as your solicitor if you are thinking about using an LPA.

What is a Lasting Power of Attorney?

A Lasting Power of Attorney (LPA) is a legal document that allows you (the “donor”) to appoint one or more people (your “attorneys”) to make decisions on your behalf should you lose the capacity to do so. There are two types of LPAs:

1. Property and Financial Affairs LPA:  This allows your attorney to make decisions about your finances, such as managing bank accounts, paying bills, and even handling property transactions.
2. Health and Welfare LPA: This grants your attorney the authority to make decisions about your personal care, including medical treatment and where you live, but only if you are deemed incapable of making those decisions yourself.

For small business owners, the Property and Financial Affairs LPA is particularly relevant, as it can cover business decisions such as managing business finances, entering into contracts, and making payroll decisions.

The Importance of LPAs for Small Business Owners

Running a small business requires constant decision-making and active involvement. However, unforeseen circumstances such as illness, injury, or cognitive decline could prevent you from managing your business effectively. Without an LPA in place, your business could face serious challenges, as no one would have the legal authority to step in and manage your affairs.

Here are a few key reasons why LPAs are vital for small business owners:

1. Business Continuity:  One of the biggest risks for small business owners is that a sudden loss of capacity could leave the business in a legal limbo. If you are the sole decision-maker and something happens to you, your business could come to a halt. An LPA ensures that a trusted person can take over and keep the business running smoothly. This continuity is essential for maintaining operations, fulfilling contracts, and keeping staff and customers reassured during what would otherwise be a period of uncertainty.
2. Avoiding Court of Protection Intervention : If you lose mental capacity and have not set up an LPA, your business affairs will be handled by the Court of Protection. This can be a lengthy and costly process. The court will appoint a deputy to manage your affairs, but this person may not be someone you would have chosen. Having an LPA allows you to select someone you trust and know will act in your best interests, avoiding the potential delays and costs associated with court-appointed deputies.
3. Control Over Decision-Making: An LPA gives you control over who will make decisions on your behalf. You can choose one or more attorneys and outline the scope of their authority. For example, you might want your attorney to handle financial decisions related to your business but not personal finances. You can also specify conditions under which the LPA will take effect, giving you peace of mind that your business will be managed according to your wishes.
4. Managing Complex Business Finances : If your business has complex financial arrangements—such as loans, contracts, or investments—it’s crucial that someone with the right knowledge and experience is able to manage these if you become incapacitated. An attorney under a Property and Financial Affairs LPA can access your business accounts, sign contracts, and make financial decisions to ensure your business continues to function effectively.
5. Protecting Your Employees : For small businesses, employees often rely heavily on the business owner for direction and leadership. If you are unable to provide that due to an accident or illness, your employees may be left without guidance. An LPA ensures that someone can step into your shoes temporarily, making key operational decisions, managing payroll, and keeping the workforce informed. This can prevent uncertainty, staff turnover, and potential legal claims arising from unpaid wages or unfulfilled obligations.

Choosing the Right Attorney for Your Business

Selecting an attorney to manage your business affairs is a decision that should not be taken lightly. The person you choose should have the necessary business acumen, financial expertise, and personal integrity to act in your best interests. You might consider appointing a business partner, trusted colleague, or professional advisor who understands your business and can step in without causing disruption.

It’s also possible to appoint more than one attorney. This can be useful if you want to divide responsibilities. For example, you could appoint a family member to manage your personal finances while a business partner handles your business affairs.

When selecting your attorney(s), it’s important to discuss the role with them in advance and ensure they understand their responsibilities. You should also consider whether to offer them compensation for their time and effort, particularly if the role will require significant involvement in running your business.

Creating a Lasting Power of Attorney

Setting up an LPA in the UK is a straightforward process, though it requires careful consideration. Here’s a step-by-step overview:

1. Choose your attorney(s): Think carefully about who you want to act on your behalf. You can appoint more than one attorney and specify whether they must act together or separately.
2. Complete the LPA forms: These can be downloaded from the UK government website or completed online. You will need to fill in either the Property and Financial Affairs LPA form, the Health and Welfare LPA form, or both.
3. Have your LPA signed: You must sign the LPA, and a ‘certificate provider’ must confirm that you have the mental capacity to make the LPA and are not under pressure to do so. This can be a professional, such as a doctor or solicitor, or someone who has known you for at least two years.
4. Register your LPA: Once completed, the LPA must be registered with the Office of the Public Guardian before it can be used. This process can take several weeks, so it’s important not to delay.
5. Keep your LPA up to date: Regularly review your LPA to ensure it still reflects your wishes and that your appointed attorneys are still willing and able to act on your behalf.

Conclusion

For small business owners, a Lasting Power of Attorney is not just a personal safeguard—it’s a vital part of business planning. Ensuring someone you trust can step in if you become incapacitated can help maintain business continuity, protect employees, and avoid costly legal complications. By setting up an LPA, you can provide your business with the stability it needs to weather unexpected challenges and ensure that your legacy is protected.

Planning for the future may not always be comfortable, but it’s an essential step in safeguarding both your personal and business interests. Don’t wait until it’s too late—consider setting up a Lasting Power of Attorney today.